Fund wrong on Hong Kong "flat tax"

Writing in support of a "flat tax" on income, Wall Street Journal op-ed columnist John Fund falsely claimed that "almost everyone in Hong Kong pays the flat tax." In fact, only a tiny proportion of the working population of Hong Kong pays a "flat tax." Fund made this claim in the February 28 edition of his regular "On the Trail" column on OpinionJournal.com, an online publication of the Journal's editorial page.

Hong Kong's "flat tax" is better described as an "alternative maximum tax." Instead of subjecting all workers to a single tax rate, as a flat tax does, it places a cap on the fraction of income that any taxpayer is obligated to pay in taxes. However, this cap affects only a small number of workers. As Media Matters for America previously explained when another column in the Journal included this same false claim, the vast majority of Hong Kong workers -- expected to be 98.5 percent in 2005 -- are subject to a graduated income tax which, as the accounting firm PricewaterhouseCoopers details, consists of four separate tax brackets and allows for significant personal and dependent deductions. Only the top 1.5 percent of income earners are expected to be subject to the single-rate flat tax in 2005, a far cry from the "almost everyone" that Fund claimed.